Small Cap Value Report (Wed 15 Sept 2021) - CCT, RCDO, TPX, CAML, ELCO, HRN, DVRG, PDG, SUN, SIS, RBGP, TWD, ANP

15th Sep '21 by Paul Scott

81 comments 10875 reads

Good morning, it's Paul & Jack here with the SCVR for Wednesday. Today's report is now finished.

It's my last day in Malta unfortunately. Although with so many RNSs to report on here, it's been more work than holiday! Mind you, waking up to this view (below), who's complaining?! (not me). And of course the weather this morning is already "scorchio!"

Agenda -

It's ludicrously busy again for updates/results today - we've already listed 14 companies on our GoogleDoc where Jack & I draft sections. So we're not going to be able to cover everything. We'll try to pick the more interesting updates (e.g. above & below expectations). If you're going to request us to look at a company in the comments below, then it helps if you explain why you think a company is worth looking at, as there's lots of other stuff competing for our attention today! By all means post your own reviews of results/updates too, we welcome that.

Paul's Section:

Ricardo (LON:RCDO) (I hold) - results for FY 06/2021 look OK, but nothing special. Balance sheet seems fine, after an equity fundraising last year. Modest divis. Overall, I'm neutral. Probably priced about right?

Panoply Holdings (LON:TPX) - a strong trading update, ahead of expectations. This share is expensive, on a high PER, but that seems justified by strong performance. Very strong order intake in particular.

Hornby (LON:HRN) - bit of a mixed trading update - strong order book (no figures provided), but as I would expect it also mentions potential supply chain problems. Overall, it's been turned around from basket case into generating a modest profit, but it's difficult to see much upside for shareholders, especially as the top 2 own 91% of the company, so minority shareholders are completely at their mercy - inherently risky.

Deepverge (LON:DVRG) - a very quick review of loss-making interims. Too speculative for me.

Pendragon (LON:PDG) - as with other car dealers, business is booming (for now). Strong full year guidance. Looks cheap.

Surgical Innovations (LON:SUN) - greatly reduced losses, due to cost-cutting. Trading around breakeven now. Balance sheet looks solid. I can't see anything to interest me here.

Science In Sport (LON:SIS) - interim results show a…

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davidjhill

15th Sep '21

I joined the analyst call yesterday and was impressed. can't find a link to a recording but the abbreviated version is on PI world as John mentions. Was surprised to see it drop but agree it does look like an interesting 3 year play

The Phoenix

Many thanks Jack for covering Central Asia Metals (LON:CAML): the work rate effort from the two of you at the moment is phenomenal both in terms of quality and sheer content/number of companies covered daily.

Regards Andy

rmillaree

Cheers for that John- i didn't realise Rene from Allo Allo is alive and kicking doing the Made.com presentations - thankfully i shall say zis only once.

GrahamF

I confess to not reading the whole article. But it sounds very much to me like he's just pointing out some inconsistencies and trying to be a bit controversial.

Frankly, someone who takes the time to try and undermine ESG the way he does on the grounds of there being differences of opinion by age group or differences of performance by size of company (which he thinks smacks of large companies gaming the system) needs to to look in the mirror and ask himself what kind of a defeatist approach that is.

He concludes with this "The ESG movement’s biggest disservice is the message that it has given those who are torn between morality and money, that they can have it all"

ESG is not a movement. (Is he trying to conflate ESG with XR, Greta etc.?)

ESG is just another set of factors that may or may not be important to a company or investor but has sprung from the fact that a significant number of investors are keen to try and steer their investments towards companies that are trying to improve their environmental performance. And on the other side of the equation, companies that are concerned about reputational damage if they don't take action and much more acute damage if the factory shuts down due to lack of water for example.

And he seems to have fundamentally misunderstood the returns aspect. It's not a case of "morality and money, that they can have it all". It's a case of you can still make a nice amount of money without investing in the most polluting industries and companies.

Tim

I take your point. But thinking about this slightly differently, (and hopefully you'll get my drift here even if I don't manage to express it very well).......

Economic growth in the West didn't come at the expense of lower long term environmental standards. (Short term yes but long term no). So, I'm not sure that there is a strong correlation between a better world in environmental terms and lower investing returns. I.E. since the age of the industrial revolution we have managed to achieve both.

I note that the likes of James Anderson are looking towards the way in which the cost of electricity from renewables is coming down rapidly and forsee a world with cheap clean electricity. (I know that we were promised the same with nuclear and it never happened but the costs of solar and wind have dropped considerably).

So, yes short term returns may be somewhat lower until technology overcomes this challenge but longer term I don't think lower returns are inevitable.

Graham

smegster

Trackwise Designs (LON:TWD) (I hold)

receivables looks extremely high, I’m not sure why.

This is high as it reflects some of the capex spend, here is the key section from the interim results

Capital expenditure in H1 was £8.7m including £2.7m which relates to deposits on new equipment, which is disclosed in the balance sheet as Other Receivables.

"so how the market gets to a £70m market cap, is beyond me."

The high market price reflects the potential of the companies Improved Harness Technology (IHT), (the investor meet company presentation provide good information on IHT 6.07mins onwards)

The shareprice for Trackwise Designs (LON:TWD) also reflects the recently signed contract with an UK EV OEM (which everyone knows is Arrival) to provide IHT products to it's electric vehicles - this will be worth a minimum £16m next year (and if I remember correctly over £30m over the next 4 years).

I would agree that this is a jam tomorrow company, I have invested due to the potential market size of IHT which is unknown but could be huge if they are able to sign a few more contract with EV suppliers.

timarr

Economic growth in the West didn't come at the expense of lower long term environmental standards.

Hi Graham

I do take your point. And longer term I'm quite hopeful, we're an incredibly resourceful and adaptive species.

However, I think we can also reasonably say that economic growth in the West has definitely come at the expense of the environment. Standards may be higher, but the costs of a carbon based economy are increasingly clear. Does anyone really believe that climate change isn't real any more?

Nonetheless, we are where we are. Without coal, oil and gas we wouldn't have been able to build out the world's infrastructure to the point where we can reasonably hope to survive and grow without those as sources of energy. We'd probably still be stuck in the pre-industrial age, eking out a subsistance lifestyle. And most of us wouldn't be here to discuss these matters.

But going forward there will be a cost in terms of economic growth in transitioning from a carbon based economy. That will fall unevenly across countries and companies. As investors we'll need to be nimble to avoid being caught on the wrong side of the game. I think the general scoffing and ill-informed 'woke' comments that usually accompany discussions around ESG on these boards show a profound lack of understanding about what's at stake here.

Personally I don't think the current approach to ESG will deliver what society needs. But it is what it is and adopting these standards carries real costs for companies and investors. So we should take it seriously while hoping for something better.

I hear what you’re saying.

I suppose that my thinking is along the lines of global warming due to greenhouse gas emissions is another environmental issue that we must overcome in the same way as we have overcome others and probably we will manage that through technology and innovation and thus economic growth will continue.

You might be interested to see this discussion on the downward trends in the cost of utility scale solar energy.

https://rameznaam.com/2020/05/...

It’s a pity that the author hasn’t got round to writing the subsequent parts and hopefully that’s not because the most recent data shows a change in the trend.

But if solar can really become that cheap it does give me hope that the living standards in some of the poor areas of Africa for example can be improved dramatically and so the burden of transitioning to a low carbon future actually might be spread quite differently to what we might think.

Paul Scott

Thanks smegster,

It's really helpful when people post additional info & views like that, which may not be obvious from the published accounts. Much appreciated, thanks.

Regards, Paul.

Nearly, it's actually 13 companies! I've ruined my holiday in Malta due to my dedication to you all!!! LOL. It's fine actually, a lovely rib-eye steak, and copious red wine has more than compensated tonight! :-)

Hi ken,

I did actually listen to the Electra Private Equity (LON:ELTA) Capital Markets Day for Hotter shoes, which will become Unbound, as a separately listed company, once TGIs is spun out shortly.

I thought it was OK. Nothing special. Unbound looks set to make £5-7m EBITDA pa, and mgt have sensible plans to expand in low risk ways into the over 55 demographic.

I think Unbound could be worth £50m+ as a separately listed company.

Mgt - generally seem OK. There was a bit too much MBA management speak for my liking. I prefer hands-on entrepreneurs. Also, the Q&A was not handled well. They clammed up & refused to answer many questions, saying it was too commercially sensitive. I think that displayed inexperience as listed company Directors. There is always a way to talk around a question, and give a sensible answer, rather than clamming up & upsetting the audience. But it's a tiny company, so I don't expect miracles from mgt, they're learning on the job, when it comes to managing a listed company, which is fine.? We'll see

TGIs is the star. Anything we get from Hotter (Unbound) is a bonus. I like the strategy, and intend running with it for maybe 2 years or so? This could become a mini SAGA, and I love the focus on over 55s, so let's see what happens. Timings dont matter.

Regards, Paul

Hi ben,

C21 was a dead loss for the many years I followed it - it never went anywhere - the occasional big contract, which always turned out to be lumpy contract wins. They didn't have any unique tech. Good luck with it, but I'd say you're wasting your time & energy, and better to bank the profit in this everything rally.

Happy to be proven wrong though.

doublelutz

Restaurant (LON:RTN) - I have said this before but the original restaurants did well being Frankie & Benny's and Chiquito. I held them from quite low down to over 600 because I was impressed with the Brunning & Price restaurants which we visit frequently, Not cheap but in the wealthy areas of Cheshire and usually very busy. I started to realise that the consensus on Trip Advisor was that the original chains were getting bad reviews so I sold all but 250 each for myself and my wife to continue to qualify for the 25% shareholder vouchers. So at that stage we had 500 shares between us worth £3,000 and now worth £500, but not to worry we have had a lot of discounts!

It seems to me that if a company can run Brunning & Price successfully and I believe also Wagamama although we don't go there, they should be able to provide decent food in the rest of the chain.

We used to go in Friday's year's ago and we preferred Brunning & Price although that may just be us, so I would say check out the food.

Also remember that individual households adjust our own inflation rate. E.g. these days I am moderately affluent, but because I was desperately poor from 1992-5, and 2008-2012, I learned money-saving habits which have changed my behaviour forever. For example, if a bag of veg is over 99p. I refuse to buy it. I'll cycle to Aldi, and fill a rucksack with fruit, veg, and noodles, for about £12. Even if I've just made £50k on my portfolio that day. It's mad. Maybe it's the fear of losing everything again? also I dont want to let down the next generation, who Ive promised things to.

Hi Pete,

Hi Paul , have a good final day in Malta. I flew out there from UK when i was 17 to join HMS Eastbourne . I can remember cheap wine and bad hangovers. I can imagine its much changed now.

How marvellous! The red wine is fantastic here in Malta, and nothing that 2 siestas cannot resolve the next day!

I feel almost turbocharged! WFA (working from airbnb) is the way forward, I think!

Incidentally, I wandered into what I thought was a gay pride demo. but then saw a "health apartheid" banner, and realised I'd wandered into some anti-vaxx numpties! Dear oh dear. There are complete fools everywhere, sadly! Natural selection will sort that out, but it's the problems it causes for everyone else that bothers me.

best wishes, Paul.

117 thumbs ups, from 6,700 reads! Paltry. I could have gone sightseeing instead today.

abtan

Journeo (LON:JNEO) (no position)

Hi Bsharman

From the last notes I made (March 2021), it seemed like underlying cash generation was quite paltry - c.£200k vs a £5m market capitalisation at the time (NB: today it is £10m).

Like you though I've noticed the large number of contract wins coming in, so I do like to keep an eye on this one in the hope that cash generation improves.

For now though, it's only on my watchlist.

Cheers

Michael,

Everyone has their own view on ESG, so I don't want to get boxed into a corner on this.

I see many positives from pushing companies and people into being better behaved & kinder.

But also it can often be box-ticking & meaningless.

Everyone can form their own view. From my view (being reluctantly gay), things seem a bit kinder, and I'm very thankful to everyone now for making my life a bit easier than it used to be. Thank you from the bottom of my heart to everyone. My inner angst gets a little less each year.

Best wishes, Paul.

Jeffvshepherd

16th Sep '21

7759 reads now Paul! The lack of thumbs up doesn't at all mean a lack of appreciation. The number of reads is the measure of popularity.

kenobi

21st Sep '21

My local Asda is the same, I guess the government are betting that wages will go up, and at some point the supermarkets will recuit drivers, and send some of their more experienced drivers off to hgv training, to resolve the problem. I think it would help if they did something to incentivise this or make it easier. Lets be honest, driving is a skill, but most people can do it, driving a van is not so skillful, obviously hgvs are much harder, but still a learnt skill. There are many unemployed people who could be trained to do this, I spoke to a chap who has an hgv licence but doesn't use it, and has friends in a similar situation as they dropped out when they could get better paid jobs elsewhere. Now considering a return. of course all of this is short term, self driving is coming, how long will it be ? I don't know 10 years ? 20 years ? a

Small Cap Value Report (Wed 15 Sept 2021) - CCT, RCDO, TPX, CAML, ELCO, HRN, DVRG, PDG, SUN, SIS, RBGP, TWD, ANP

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Paul Scott

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